U.S. Department of Energy Energy Efficiency and Renewable Energy

Bonding Tools Available for Financing Energy Projects

The American Recovery and Reinvestment Act (ARRA) provided for a variety of new and expanded public financing options that offer greater flexibility for recipients of ARRA funds in leveraging grant funds and obtaining additional capital for financing energy efficiency or renewable energy than was possible prior to the passage of ARRA.

The following table provides an overview of whether the proceeds of each bond may be used for private purposes or to fund projects owned by private individuals. The allocation process and deadlines related to each type of bond selected are listed along with additional details on each bonding tool. Although some of the options summarized below are scheduled to either expire or be fully allocated shortly unless extended or expanded by Congress, the tools are useful to understand because successful programs are often extended, expanded, or copied in future legislation.

Summary of Bonding Tools Available for Financing Energy Projects
Type of BondPrivate Use Allowed?Allocation ProcessExpiration Date
Tools Still Current
Qualified Energy Conservation BondsYes, up to 30% of allocation. No limit for "Green Community Programs"$3.2 billion allocated by population to states and large localities (100,000+)No expiration date
New Clean Renewable Energy BondsNo$1.6 billion allocated to governmental bodies, municipal utilities, and cooperative electric companiesValid for 3 years after allocation received
Tools Expired or Soon to Expire
Build America BondsNoNo state or national limitDec. 31, 2010
Recovery Zone Facility Bonds Yes, must be located in Recovery Zones$15 billion national cap allocated within states at county level based on job losses from Dec. 2007–Dec. 2008Dec. 31, 2010
Recovery Zone Economic Development BondsNo, must be located in Recovery Zones$10 billion national cap allocated within states at county level based on job losses from Dec. 2007–Dec. 2008Dec. 31, 2010

The types of bonds listed in the table may be available to finance energy efficiency and renewable energy projects for Energy Efficiency and Conservation Block Grant (EECBG) Program and State Energy Program (SEP) recipients.

Possible Combination of Bonding Tools and Federal Grant Funds

It is possible to combine several of the tools listed above with federal grant funds such as EECBG or SEP funds. For example, a solar project in Salt Lake County, Utah, is currently planning to issue qualified energy conservation bonds to be combined with EECBG funds and other U.S. Department of Energy grant funds as a loan to a private solar developer. The private developer will contribute additional equity to complete the project. After the tax credit period has expired, Salt Lake County could exercise an option to purchase the equipment at a substantial discount compared with the original construction cost just a few years earlier, and the low-cost debt will help reduce the cost for power the County pays to the private project developer. Qualified Energy Conservation Bond (QECB) proceeds may be loaned to the private developer because only 30% of the County’s allocation is being used for this purpose, and up to 30% of the QECB allocation may be used for a private activity bond (PAB) as long as the bond proceeds are used for a qualifying purpose (solar power projects qualify).

Proceeds from QECBs could also be used in conjunction with EECBG funds or other state or federal grant funds to provide financing for either public or private energy efficiency retrofit programs. Private energy efficiency programs designed as green community programs under the QECB guidelines would not be subject to the 30% PAB limitation. Because of the small number of QECBs issued, however, complying with the program guidelines can be challenging, and competent bond counsel and other financial advisors should be consulted.

Additional Information

For more information, see  the article, IRS Releases Guidance on ARRA Bond Provisions.